By Stanley White
TOKYO (Reuters) - Japan's exports surged in May by the fastest in more than two years on bigger shipments of cars and steel, an encouraging sign that robust overseas demand will support economic growth.
The 14.9 percent annual increase in exports in May was below the median estimate for a 16.1 percent annual increase but was nonetheless the biggest rise since January 2015.
Exports are likely to continue rising at a steady clip as overseas economies show increasing signs of strength, which should help Japan's economy extend its recent run of solid expansion.
"The main scenario is Japan's exports will continue to recover," said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities.
"However, the pace of growth could slow somewhat as inventories of certain goods, like electronics, start to build up overseas."
Exports of cars and car parts rose partly because an earthquake in Kumamoto last year in May temporarily shut down production of these goods, Tonouchi noted.
Japan's exports to the United States rose 11.6 percent in May from a year ago, the fastest increase since July 2015, due to an increase of shipments of autos and auto parts.
Exports to China increased 23.9 percent year-on-year in May, following a 14.8 percent annual increase in April. Larger shipments of flat panels and semiconductor manufacturing equipment drove the gains in China-bound exports.
Exports to Asia, which includes China, rose 16.8 percent in May from a year ago, the fastest increase in three months, due to increased shipments of electronics to Hong Kong and steel to Indonesia, the data showed.
In terms of volume, Japan's exports rose 7.5 percent in May from a year ago, the fastest gain in three months, another indication that overseas demand is firm.
Japan's imports rose 17.8 percent in the year to May, versus the median estimate for a 14.8 percent annual increase, as a rise in the price of oil from a year ago pushed up the value of imports.
The trade balance came to a deficit of 203.4 billion yen ($1.83 billion), versus the median estimate for a 76.0 billion yen surplus.
Policymakers and economists have become more optimistic about Japan's prospects this year as an increase in factory output and a tightening labor market show the economy is poised to extend its recent growth.